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3 Stocks With Bullish Technical Setups - 54145 views
BALTIMORE (Stockpickr) -- Another morning of relatively flat futures activity is helping the S&P 500 to build a base this week after a spike in volatility in the last dozen trading days.
It all started with a break below the S&P’s intermediate trend line support level. While that level is hardly essential for the broad rally to continue on course, it certainly was enough to derail stocks’ ascent in the near-term.
But buyers came back into the market in force last week, shoving the S&P back above the 1,300 level in just a few trading days.
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Even though the market’s current base-building should make for a return to some relatively docile trading conditions this week, things are looking ever stronger for the bulls right now. All the more reason to take a look at attractive technical setups.
Remember, technical analysis is a way for investors to quantify qualitative factors, such as investor psychology, based on a stock's chart patterns and trends. Once the domain of cloistered trading teams on Wall Street, technicals can help top traders make consistently profitable trades and can aid fundamental investors in better planning their stock execution.
Here's a look at this week's potential trades.
Silver Standard Resources
Mid-cap silver stock Silver Standard Resources (SSRI) has been a major beneficiary of silver’s increase in price in the last 12 months. Shares of the miner have rallied more than 65% in the last year, underperforming the metal but grossly outperforming the equity market over that same period.
Now a bullish setup in Silver Standard suggests that higher prices could be on the way.
That’s thanks to the inverse head and shoulders pattern that’s forming in shares of SSRI. Simply put, a head and shoulders pattern is a pattern characterized by a major trough (inverse head) with two smaller troughs on either side (shoulders). When shares move above the formation’s upside resistance level -- known as its neckline -- buyers have a trigger to buy shares.
Statistically, the inverse head-and-shoulders is a significant pattern that can result in successful trades -- but the key is risk management. That means not entering the trade until a confirmed break above the neckline takes place. It also means keeping a tight protective stop as a contingency for failure.
Silver Standard showed up on a list earlier this month of four metal and mining stocks with upside.
While real estate investment trusts (REITs) are generally thought of as income-generation instruments, they can also be effective trading vehicles. Take Taubman Centers (TCO), for instance -- a “channel up” in this $3 billion shopping center operator suggests that we’re approaching an ideal buying opportunity.
A channel up is perhaps one of the most simple technical patterns out there -- but simplicity is hardly a reason to eschew a highly effective setup. Essentially, a channel up occurs when a stock is in an uptrend, bounded by parallel support and resistance levels. The ideal time to buy is when shares are sitting just above support, primed to move back up toward channel resistance.
The key to acting on this trade is to wait for a bounce off of the support level to take place before buying shares. In the case of Taubman, traders will want to see a push above the 50-day moving average before it makes sense to buy this stock. That push is confirmation that the pattern is likely to hold.
An ascending triangle in shares of Vectren (VVC) is telling traders that shares of this energy holding company present upside potential right now. An ascending triangle takes place when a stock’s price action is bounded by a horizontal resistance level to the upside, and an upward trend line below. As shares of VVC get squeezed closer and closer to that overhead resistance level, the chances for a break above that price become significantly greater. The buy signal comes on a move above resistance; in VVC’s case, we’re looking for a move above $27.
When trading technical setups, one of the most difficult factors in any trade is waiting for confirmation of a breakout. Confirmation is the signal that a breakout is more than just an intraday whipsaw. It’s clear that shares of VVC have moved above $27 before without fully breaking out, so how do you know when to take the trade? One of the best indicators will be an open above $27 followed by higher price action in the morning hours.
That price behavior signals that the overhead supply of shares at $27 has been absorbed by eager buyers, and that the upside barrier is no longer effective. If you do decide to take this trade when and if it triggers, keep your protective stop below nearest support at $26.
-- Written by Jonas Elmerraji in Baltimore.
At the time of publication, author had no positions in stocks mentioned.
Jonas Elmerraji, based out of Baltimore, is the editor and portfolio manager of the Rhino Stock Report, a free investment advisory that returned 15% in 2008. He is a contributor to numerous financial outlets, including Forbes and Investopedia, and has been featured in Investor's Business Daily, in Consumer's Digest and on MSNBC.com.